Federal Reserve Chair Janet Yellen fielded questions fromCongress about the U.S. central bank's toolbox of monetary policy actions, atone point being asked if equity purchases could be added as a tool in the future.She also defended the Federal Open Market Committee's to leave interest ratesunchanged, and championed tailored regulation for stress tests during a HouseFinancial Services Committee hearing Sept. 28.

Rep. Mick Mulvaney, R-S.C., asked Yellen if the Fed islooking into equity purchases as a monetary policy tool much like the Bank ofJapan. Yellen said longer-term monetary policy might beg the adoption of newtools but clarified that the Fed, which is only authorized to purchase U.S.Treasuries and agency securities, would need Congressional authorization ofthose purchases into law.

"But this is not something that the Federal Reserve isasking for," Yellen said, adding that "there would definitely becosts to take into account."

Rep. Denny Heck, D-Wash., asked Yellen later in the hearingabout which tools she would use in the event of another recession, which sheused as an opportunity to validate the new monetary policy tools used during thecrisis.

"I think we may be required to use the same kinds oftools we used during the crisis in the event of a future downturn. I emphasizedthat those probably need to be permanent parts of our arsenal," she said.

For some members of Congress, the decision not to raiseinterest rates in September raises concerns about what the Fed is actuallylooking for in a recovering economy.

"To no surprise, the Fed decided to continue theextraordinary accommodative monetary policy," Rep. Scott Garrett, R-N.J.,said. "I know you have taken the position that the Fed position is alldata driven … but you know, less and less people really do believe that."

Yellen reiterated that the Fed sees positive trends in labormarkets and inflation levels, but that low productivity rates are"depressing." She said the Fed is trying to walk a fine line betweenraising rates and controlling an "overheating" economy characterizedby strong labor market growth but little inflationary pressure — factors thatcould jeopardize the pace of rate hikes the Fed would like to make.

"We want to make sure the expansion of the job marketis sustainable over the medium term," she said. "If we allow theeconomy to overheat we could be faced with having to raise interest rates morerapidly than we would want."

Yellen also stressed that the Fed's 2% target for theinflation rate is not a ceiling, and that the central bank would be flexibleabout the interpretationof the inflation rate in the future.

Inregards to regulation, Yellen showcased a proposal announced by Governor Daniel Tarullo on Sept.26, which tailors stress-testing regulation to exempt certain banks smallerthan $250 billion in assets from the qualitative portion of the Fed'sComprehensive Capital Analysis and Review.

Responding to a question from Rep. RubénHinojosa, D-Texas, about regulatory agencies' ability to tailorregulation, Yellen said the Fed has the scope to adapt but "not as much aswe would like." She cited the Volcker rule and incentive compensationrules as areas where the Fed sees shortcomings in tailoring regulation.